Livingstone threatens action over tube 'folly'

London's mayor, Ken Livingstone, last night predictably denounced the government's decision to press ahead with the £16bn partial privatisation of the London Underground, threatening court action to protect the capital's travelling public from "a folly as great as the debacle we have seen on the national rail network".

The transport secretary, Stephen Byers, announced his decision yesterday after receiving a "value for money" report from accountants, Ernst and Young, backing the plan as well as the approval of the board of London Regional Transport.

He assured passengers that there need be no real terms increase in fares, placing the onus on any decision to raise prices directly with Mr Livingstone.

Mr Byers said: "The government wanted to make sure that the decision was the right one. But it is now time to end the wrangling and get on with the investment." He added: "This is not a Railtrack for the Underground. There will be no shareholders, just ticketholders. We will have to meet their demands."

The two consortiums involved in the PPP - Metronet and Tube Lines - said they were delighted with the go-ahead. But the unions labelled the move as catastrophic and a disaster. Mick Rix, general secretary of the train drivers' union Aslef, said: "London Underground has been handed over to the real wreckers - accountants, lawyers and building site bosses who have all but destroyed the railway industry. Londoners will pay for this catastrophic decision for generations."

Mr Byers underlined that some £12bn of the £16bn invested would come as subsidies and from fares, while the private sector would only contribute £4bn.

The government's view is that over the first 15 years of the 30-year contracts, London Underground would save £2bn compared to carrying out the same work with public funding. This means that the Treasury is committed to subsidising the tube for more than £700m a year for 15 years.

Mr Byers admitted that passengers would not see immediate improvements in the system. But he pointed out that the aim was to improve reliability by up to 20% in the first two years. There will be no new rolling stock for the first seven years, while the system is upgraded and new signalling installed.

Mr Livingstone questioned the independence of the "value for money" report from Ernst and Young. He said the company was the auditor for key firms in two of the successful PPP consortiums: "This appears to be a clear conflict of interest and on these grounds alone, their report should be disregarded." He pointed out the report did not fully endorse the PPP. One of the key paragraphs in it stated: "The contract structure does not allow the presentation of an indisputable quantified assessment of the value for money."

Mr Byers retorted that the report concluded that Ernst and Young's methodoloy had been "robust and appropriate" and that London Underground's recommendations were "subjective" but were supported by analysis.

After taking the tube to a north London estate, Iain Duncan Smith, the Tory leader, said standards had fallen because the government had dragged its feet for five years. "Our priority is not to play political football. We want to try and make whatever there is work."

Susan Kramer, Liberal Democrat board member on Transport for London, the mayoral body which will control the tube network, said: "Londoners and the British taxpayers are being asked to pay through the nose for the privilege of a hellish ride for the next 30 years."